Thank you, Congresswoman and District Governor Bernadette Herrera, for that very kind introduction.
Institute Convenor and Rotary International Director Raffy Garcia and spouse Minda; Rotary International President-Elect Holger Knaack and spouse Susanne; Rotary Foundation Trustee Sangkoo Yun and spouse Eunsun; Institute Chairman Past District Governor Isidro Garcia and spouse Tesha; Pasay City Mayor Honorable Imelda Calixto Rubiano; Members of the Manila Rotary Institute; distinguished guests, ladies and gentlemen.
I find that my most important speeches always begin with the phrase “my fellow Rotarians.” Thank you for this opportunity to be with you today.
Interacting with Rotarians is always redeeming. Your enthusiasm for service is contagious. Your camaraderie is infectious. Your meetings are always very pleasant events.
I hope our foreign friends who have travelled to Manila for this meeting will be patient with our traffic congestion. Apart from the holiday rush, which in this city is a protracted affliction, the country is hosting thousands of athletes in town for the Southeast Asian Games. Otherwise, this city, known to have the longest Christmas holidays on earth, offers many happy detours.
I am aware of some of the Rotary Clubs’ projects, especially those seeking to help areas hit by natural disasters and communities facing the challenges of fighting poverty. Your work in this regard is highly appreciated by all.
It will interest you to know that the Philippines, under the leadership of President Rodrigo Roa Duterte, made measurable poverty reduction the central goal of its tenure. From 27.6 percent in the first half of 2015, the Duterte administration’s ultimate goal is to bring poverty rate down to 14 percent by the end of its term in 2022, helping one million Filipinos lift themselves from poverty every year.
This is a tough assignment, you will agree. Residual incidence of poverty is always difficult to root out. But I am pleased to inform you that our people are beginning to reap the rewards from a well-managed economy. Actual poverty incidence has significantly declined to 21 percent in the first half of 2018.
The Duterte administration is also confident that we can meet our target of 6 to 7 percent GDP growth this year despite headwinds of a broad slowdown in the global economy.
Our domestic growth has been strong and resilient in the face of external challenges. In the first 13 quarters of the Duterte administration, the economy expanded by an average of 6.4 percent.
The country’s sovereign risk rating has recently been upgraded to BBB plus by Standard and Poor’s. This is higher than some Eurozone economies such as Italy and Portugal. We take that as recognition of the country’s efforts to maintain the highest standards of fiscal discipline. Our financial system is rapidly modernizing towards greater inclusivity.
Today, the country’s international reserves have risen to a record level of 85.7 billion US dollars at the end of October—the equivalent of over seven months’ worth of imports and this is higher than our total foreign debt. That is a major reason for our currency’s stability. The strong remittance inflows from our expatriate workforce also sustain domestic consumer demand. That is the source of strength for our economy.
Next year, we expect to graduate to the ranks of upper middle-income countries. This is happening way ahead of schedule and provides another testimony to our economic achievement.
The strong growth position we now happily find ourselves is the result of the comprehensive package of reforms espoused by President Rodrigo Duterte. This package includes, at the core, a comprehensive tax reform program that is designed to bring relief to wage earners while at the same time improve the reliability of revenue flows to fund our investments in the future. This is the source of confidence in our ability to fund infrastructure modernization and drastically bring down poverty incidence in the medium term.
The first package of this program, involving the reduction in personal income tax rates offset by increased excise taxes worked wonders for the economy. On one hand, it delivered to 99 percent of our taxpayers the equivalent of a month’s take home pay. This certainly helped boost consumer demand. On the other hand, it discouraged consumption of products that are unhealthy such as sweetened beverages and tobacco.
Total revenue collections are very robust, growing at 42 percent for the first ten months of 2019 compared to the same period in 2016. Meanwhile, revenues from the first package of the tax reform program are up by 65 percent for the first half of this year.
Apart from the increase in our revenues, we have also been relentless in improving our tax administration. In 2017, one year after we took office, we eliminated tax evasion prevalent in the cigarette industry. We collected the highest amount of tax settlement from a single company totaling 600 million US dollars due to non-payment of the correct taxes, and forced the shareholders to sell their business. We had the business sold to a foreign company, who’s majority shareholder is their government, and that company now pays on the same volume of cigarettes about 50 million US dollars more per month in excise taxes.
These revenues fund the socioeconomic priorities of President Duterte such as the Build, Build, Build infrastructure program, expanded social services, including the conditional and unconditional cash transfer programs, free tuition in State Universities and Colleges, universal health care, and the continuing improvements to the country’s defense and public safety capabilities.
In particular, the Build, Build, Build program will, in the shortest possible time, enable us to close the infrastructure gap with our neighbors in the region. That gap was incurred through the many long years of austerity as we grappled with debt problems. We estimate that we can finance 20 percent of our infrastructure projects through our own revenue flows from improved collection performance and tax reform.
The Build, Build, Build program involves thousands of connectivity and logistics improvements all over the country that will raise productivity dramatically. Also included in the program is a subset of 100 highly strategic infrastructure projects that cover transport and mobility, power, water, information and communications technology, urban development and renewal.
Public spending on infrastructure rose to over 5 percent of GDP in 2018, the highest rate we have achieved and double the average of infrastructure spending to GDP in over 50 years. We expect to bring that up higher to about 7 percent by the end of the President’s term.
The centerpiece of the infrastructure program is the New Clark City in Central Luzon—about a hundred kilometers north of Metro Manila. This area has attracted new industries and promises to be the center of modern enterprise for the region. The New Clark City houses a world class sports complex, which is now the venue of the major Southeast Asian Games. This area is also supported by the new and modern Clark International Airport. The airport is now 87 percent complete and is targeted to be operational by the middle of next year, having been started only at the end of 2017.
Public spending on infrastructure and private spending on construction combine to boost domestic economic demand, create jobs, and open numerous investment opportunities. The multiplier effects of such investments provide a strong driver for our domestic economic expansion. Should global conditions remain adverse, we should be prepared to pull up our economy almost literally by our bootstraps.
Sustaining a high growth rate is, for us, more than just an option. It is a necessity.
We are fortunate that the Build, Build, Build program is strongly supported by our Congress, our development partners in the region as well as multilateral financial institutions. It has become a showcase for coordinated international cooperation. For instance, both Japan and China have committed 9 billion US dollars each in official development assistance over the next few years to help fund our infrastructure program. South Korea has committed an additional 1 billion US dollars.
The vibrant participation so far from international and local companies in our Build, Build, Build program is also a proof that they trust the Duterte administration and in the transparent, fair and corruption-free bidding process implemented by our government. We are very open to Public-Private Partnerships provided that the PPP projects are implemented in a short span of time and promote the public interest by avoiding contracts that are disadvantageous to the nation and do not burden people with very high fees. In other words, the PPP must be replaced by PPPP–Public-Private Partnerships for the PEOPLE.
The commercial markets are also a source of our infrastructure funding. We have been successful in diversifying our bond issuances with tight spreads as low as 32 basis points over benchmarks. The Philippines has tighter spreads relative to other observed countries such as Indonesia, Mexico and Colombia across currencies.
For instance, our return to the Euro market after more than a decade proved to be successful as we were priced the lowest-ever Euro yield for a sovereign issuer outside the European Economic Area. We likewise returned to the Samurai market last year and this year after an eight-year break. We are now also in the Panda market. We continue to monitor these various markets for opportunities to raise funding for our Build, Build, Build program.
Apart from the tax reform and massive infrastructure program, the Duterte administration has vigorously pursued governance reforms over the last three years. These reforms have cut red tape, brought down the volume of corruption and modernized bureaucratic procedures. In the latest Ease of Doing Business Report issued last month by the World Bank, the Philippines jumped 29 places. That best sums up the results of the governance reforms we have undertaken.
We are also the only administration that actually succeeded in passing the Rice Tariffication Law after around three decades of failed attempts. The importation of rice is no longer limited by volume, but is now subject to a tariff that is earmarked for investment for farmer productivity programs. Rice tariffication is beneficial to all segments of society, including the corporate sector. It has brought down the price of our country’s staple food for more than 100 million Filipinos, and has slowed down the inflation rate, which, in turn, eased the pressure on businesses to raise wages. We expect this measure to be a key driver in modernizing our farm systems and bringing down rural poverty.
The policy and administrative reforms undertaken over the past three years under the leadership of President Duterte is reflected in the increased investment flows into our economy. Over the past two years, the Philippine economy has attracted foreign direct investment or FDI of 20 billion US dollars. For two consecutive years, our FDI averaged 10 billion US dollars a year, about double the inflows that we received in 2015.
We look forward to more investments as the means to make our growth more inclusive. These reforms are broadly supported, ensuring both continuity and stability deep into the future.
However, we are not done yet. The remaining tranches of our comprehensive tax reform program are still in the legislative mill. These include the proposal to reduce our corporate income tax rate to make it at par with the regional average. The reform will encourage more investments in our economy as well as induce better tax compliance.
In turn, we seek to rationalize our fiscal incentives to create a level playing field for our enterprises and attract new players to compete. To be clear, we are not eliminating fiscal incentives. We want to keep granting incentives for the right reasons and for the right investments. We want these incentives to be performance-based, time-bound, specifically targeted and fully transparent. We just want to adhere to standards very similar to that of other countries like Singapore and Malaysia.
We also need to pass land valuation reform. This will help local governments collect the right taxes and clear the way for many right-of-way issues that languish in our courts, sometimes for decades, delaying for too long the efficiency and relief that good infrastructure brings to businesses and commuters.
We likewise need to pass the financial reform package. This will level the playing field and develop our capital markets to attract more investors to take part in our infrastructure program. Simplifying the tax system in the financial sector will also help lower insurance costs, encouraging more Filipinos to avail themselves of financial protection from loss of life, property and damages incurred from natural disasters.
In addition, the bill proposing a general tax amnesty should include the lifting of the bank secrecy for tax fraud cases and the automatic exchange of information among regulatory agencies. This will be helpful in cleaning the slate and bringing us to a more reliable tax regime.
The revenues from the recently passed tobacco tax reform are earmarked to augment the huge funding we need for Universal Health Care. I’d like to note that we are the only administration that raised the tobacco excise taxes twice as a health measure. We hope to raise the remaining balance with the subsequent enactment of higher excise taxes on alcohol and e-cigarettes.
There is one more, largely unspoken factor, that makes us even more confident in our economy’s long-term outlook: our very young and very well-educated population. In contrast to some of the mature Asian economies, the country is nearing what we call a “demographic sweet spot.” We either provide enough economic opportunities for Filipinos entering the workforce or court alienation and unrest.
There is, therefore, no turning back from our 10-point socio-economic program that is designed to sustain our rapid and inclusive economic growth. The wellbeing of our people depends on the success of this strategy. There is no time to spare.
We are confident that, over the next two years, we will continue strengthening the foundations of rapid and inclusive growth. If you look around you, with all the construction projects going on, you will see a new competitive economy being born.
I realize that many Rotarians are also decision-makers in their respective businesses. I hope that you will help us spread the word about the bright prospects facing our economy. There is much business to be done here, many partnerships are waiting to be forged.
Please visit us again soon as investors. And in closing, let me wish you a productive meeting and a very pleasant stay.
Thank you and good evening.